Mortgage insurance (MI) protects mortgage companies in case a borrower fails to pay a home loan. It is typically required by a lender on mortgages with a down payment of less than 20% of the purchase price and is usually charged in monthly premiums. For buyers with tight budgets, monthly charges for MI can be an extra hardship. Financed MI is a potential solution. In this blog you will find the definition of financed mortgage insurance.

Definition Of Financed Mortgage Insurance

Financed MI enables a borrower to cover the insurance cost at closing and essentially include the cost into the principal of the home loan. It is available on both fixed rate and adjustable rate programs. It is helpful to understand the pros and cons of this arrangement.

Benefits of Financed MI

Financed MI reduces the total monthly mortgage payments. The overall amount of the insurance is somewhat low when applied to the life of the mortgage. It can also offer the most tax benefits as not all homeowners can use a tax deduction for monthly mortgage insurance costs.

Downside of Financed MI

There are a few cons to financing MI. Since the cost of MI is rolled into the principal of the loan, the mortgage starts at a higher figure. Additionally, the total premium is paid up-front so there is a greater up-front expense to obtaining the mortgage. If the mortgage is paid off early, the cost of MI can be effectively higher than using the monthly premium alternative.

Assessing MI Alternatives

Financing MI can be helpful if you want to hold on to a mortgage for more than a few years and/or if you require a lower monthly payment. If you intend to pay off your loan in a couple of years, it might be less costly to pay the insurance monthly. This definition of financed mortgage insurance is offered for reference only. To determine the best option for your particular situation, consult with a mortgage professional.